Concord Coalition Warns Against Backsliding in Washington on Pay-As-You-Go Standard

WASHINGTON -- With the Senate this week considering repeal of the recent reduction in cost-of-living (COLA) increases for working-age military retirees, The Concord Coalition warned lawmakers that deviating from a pay-as-you-go standard for new spending and tax cuts would make a grim fiscal outlook even worse. The proposal under consideration would not offset the cost of a repeal, which will cost $6.8 billion.*

“Falling annual deficits, welcome as they are, have unfortunately distracted some in Washington from projections that trillion-dollar deficits will return in a few short years and that the debt will continue to grow faster than the economy,” said Robert L. Bixby, Concord’s executive director. “This is no time to abandon pay-as-you-go (PAYGO) budgeting, especially with the COLA adjustment for younger military retirees. This change was a key part of the budget agreement that leaders from both parties touted less than two months ago, and that passed with large majorities in both the House and the Senate.”

The budget outlook released on Feb. 4 by the Congressional Budget Office projects that deficits will bottom out at $478 billion in 2015 and then rise steadily to again top $1 trillion by 2022.

Debt held by the public -- which excludes government trust fund holdings -- is projected to rise from 73.6 percent of GDP this year to 79.2 percent in 2024.

“Absent a genuine emergency, any new spending or tax cuts should be fully and credibly offset,” Bixby said. “With spending and taxes being driven further apart under current law, even a strict pay-as-you-go policy would not be enough to stabilize the growing debt. PAYGO is, however, the first line of defense against further fiscal erosion.”

The modest reduction in COLA increases for military benefits for working-age people is one of the few tough choices that has been made to restrain the unsustainable growth of federal benefits.

“Reversing the decision on these cost-of-living increases without bothering to make up the cost elsewhere would send a powerful signal that Congress is still not prepared to seriously tackle our fiscal challenges,” Bixby said.

Abandoning PAYGO in this case would make it harder to stick with PAYGO for some much larger initiatives that are sure to be considered in the near future: renewing tax breaks known collectively as “the extenders” because Congress usually finds a way to extend them, and the so-called “doc fix” to prevent a 24 percent cut in Medicare reimbursements to physicians.

The fiscal implications of PAYGO-free budgeting are substantial. According to the Congressional Budget Office, simply renewing all the extenders would increase the deficit by $913 billion over 10 years. Preserving Medicare’s current physician reimbursement rates for 10 years would cost $115 billion.

“Committing to a pay-as-you-go standard is just the first step. It means nothing if the offsets are mere scoring gimmicks,” Bixby said.

For example, Congress should not count “war savings” that were never intended to be spent in the first place. Even worse is the “pension smoothing” idea that simply shifts revenues forward while leaving an even bigger hole to fill in the future.

“Such tactics mock the very idea of PAYGO, ” Bixby said. “These are not offsets. They are charades.”

*Number updated to reflect most recent CBO cost estimate which now includes Fiscal Year 2024.

The Concord Coalition is a nonpartisan, grassroots organization dedicated to fiscal responsibility. Since 1992, Concord has worked to educate the public about the causes and consequences of the federal deficit and debt, and to develop realistic solutions for sustainable budgets. For more fiscal news and analysis, visit concordcoalition.org and follow us on Twitter: @ConcordC